NY Times advocates to curb wages, pensions and health benefits for government employees

The New York Times editorializes on our state's fiscal crisis, with some recommendations that surprise me.  This famously liberal newspaper criticizes state employees' overly generous wage, pension and health benefits won by strong unions exerting heavy political pressure on our legislators.

At a time when public school students are being forced into ever more crowded classrooms, and poor families will lose state medical benefits, New York State is paying 10 times more for state employees’ pensions than it did just a decade ago.

That huge increase is largely because of Albany’s outsized generosity to the state’s powerful employees’ unions in the early years of the last decade, made worse when the recession pushed down pension fund earnings, forcing the state to make up the difference. 

Although taxpayers are on the hook for the recession’s costs, most state employees pay only 3 percent of their salaries to their pensions, half the level of most state employees elsewhere. Their health insurance payments are about half those in the private sector....

To point out these alarming facts is not to be anti- union, or anti-worker....

Here are the three most expensive areas of spending that need to be addressed:

WAGES Last April, in the midst of one of the worst financial crises that New York and the nation have ever faced, the state’s unionized workers got a 4 percent pay raise that cost $400 million. It came on top of 3 percent raises in each of the previous three years. These raises were negotiated long before the recession began, by a Legislature that routinely gave in to unions that remain among the biggest political contributors in Albany.

During the same period, many private-sector workers had their pay or hours cut. Private-sector wages in New York dropped nearly 9 percent in 2008. In 2009, Gov. David Paterson pleaded with the unions to give up the raises to help the state out of its crisis. Union leaders attacked him in corrosive television ads, and Mr. Paterson eventually caved, settling for an agreement that reduced pension payments to new employees. The deal wasn’t enough to address New York’s serious fiscal problems.

The average salary for New York’s full-time state employees in 2009 (even before the last round of raises) was $63,382, well above the state’s average personal income that year of $46,957. Mr. Cuomo’s proposed salary freeze for many of the state’s 236,000 employees is an important step to rein in New York’s out-of-control payroll. It could save between $200 million and $400 million.

He may need to go further. Even after the current labor contract runs out on April 1, more than 50,000 workers are in line for step increases and longevity pay negotiated in that contract, which will cost about $140 million. A clause in the state labor law known as the Triborough Amendment allows contract provisions for all workers to proceed until a new contract is reached.

This clause, unique to New York, was a well-meaning attempt to give some balance to state unions, which by law are not allowed to strike and had no leverage to draw management to the table in flush years. The problem with the Triborough Amendment is that it gives the unions far less incentive to bargain, as we saw last year.

The amendment should be re-examined. Allowing the state to cut wages or benefits without a contract would be unfair, especially given the no-strike law. But the state should, at least, have the power to freeze wages and benefits once a contract runs out, which would give both sides an incentive to bargain.

PENSIONS In 2000, employee pensions cost New York State taxpayers $100 million. They now cost $1.5 billion, and will be more than $2 billion in 2014. Wall Street’s troubles are a big part of that. But so are state politics. The Legislature, ever eager to curry favor with powerful unions, added sweeteners to pensions and allowed employees to stop making contributions after 10 years.

In 2009, Albany began to recognize the deep hole it had dug. Under the state Constitution, a worker’s pension benefits cannot be cut back once granted. So under the agreement Mr. Paterson reached with the unions, a more rigorous tier was created for nonuniformed employees hired after 2009. It raised their retirement age from 55 to 62, required pension contributions every year instead of just the first 10, and capped the amount of overtime that is calculated in pension benefits.

The deal did not go far enough. New employees can still retire with full benefits at 62, while most American workers must wait until 65. They can still drive up pension payments by earning overtime in their final years, up to a $15,000 cap. And most important, they have to contribute only 3 percent of their pay to their pension; the national norm for public employees is double that.

In the next few weeks, Mr. Cuomo will propose a less-generous tier for new employees. Ideally, it will address all of these problems: pushing the full-retirement age to 65, raising employee contributions to 6 percent, and ending the use of overtime in calculating payments....

It is also worth considering giving new employees the option to join what is known as a defined-contribution system, similar to the 401(k) plans widely in use in the private sector, and reducing the reliance on a guaranteed benefit system that has proved so ruinously expensive. The 401(k) system shifts the risk of a falling stock market to the employee instead of the state, but in the long run may be necessary to protect vital state services from economic downturns.

HEALTH INSURANCE As national health care costs have soared, the state’s payments for employees’ and retirees’ care has more than doubled in the last decade. This fiscal year, the state will pay $3 billion; that is projected to keep growing by $300 million to $400 million a year.

Health care contributions by state retirees are considerably lower than for workers in the private sector or the federal government, and will almost certainly have to be raised as baby boomers retire.

Current state employees pay 10 percent of their health insurance premiums for single policies, and 25 percent for family policies, which is roughly in line with national averages for the public sector. But it is considerably less than most private workers pay — 20 percent and 30 percent, respectively.

If the state is unable to achieve the necessary savings in wages and pensions, it may need to seek higher insurance contributions for all state workers. That benefit is not protected by the state Constitution.

Related:  http://educationquicktakes.blogspot.com/2011/02/update-on-health-care-costs-paid-by.html